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Why Just Buying the S&P 500 Does Not Solve Retirement Math · How to Retire on Time

• 0:00
  Mike: Hey. Thanks for joining. Here's a question I was recently asked on my show, how to retire on time. Take a look.
• 0:11
  David: Alright. Next question. The math never works out if I do anything else other than invest in stocks and the S and P 500. What am I missing?
• 0:21
  Mike: You're missing sequence of returns risk and market conditions.
• 0:24
  David: Yeah. So so, yeah, what do they mean here by the math isn't working out?
• 0:28
  Mike: The math doesn't work out when you when you just talk about investments in growth. When you start putting in the idea that you're going to take income out, and when the markets drop, you're going to accentuate those losses, that completely skews projection. Oh. Most people I have seen that have their excel sheets are taking the last ten to fifteen years thinking that's what the market's gonna do. Mhmm.
• 0:49
  You need thirty years as a case study to understand market conditions. Now, you can slide that thirty years wherever you want.
• 0:56
  David: Mhmm.
• 0:57
  Mike: Not hard to find that data online. Yeah. Right? SPX is what you're looking for.
• 1:04
  David: That's like the S and P 500 index. Yep. Okay.
• 1:07
  Mike: But you also wanna find the total return, so dividends reinvested.
• 1:11
  David: Okay.
• 1:12
  Mike: To just just kind of fully encapsulate. But the the point I'm... I wanna make here is markets have very long cycles. I've seen a lot of people back test it based on the last five years or the last ten years. It's very easy to win during those times.
• 1:29
  Mhmm. It's not easy to win in a flat market. It's not easy to win in a inflationary issue like in the sixties and seventies. It's not easy to win when there's new inventions like the railroad, the industrial revolution, the electrification of America. The...
• 1:47
  I mean, I go on and on and to go on. Those are the things that lead into flat markets.
• 1:52
  David: Mhmm.
• 1:53
  Mike: We're experiencing similar situation like that now. And I don't know if the markets will go flat or not, but the research suggests that it might. That means buy and hold the S and P, a very volatile situation, may not make a lot of sense. That doesn't mean you need to go to bond funds, but it goes back to how much should go in the fixed category, if any at all, for lowering market risk.
• 2:17
  David: K? Okay.
• 2:18
  Mike: Short term needs, lowering market risk, increasing inflation risk, lowering market risk.
• 2:22
  David: Okay.
• 2:23
  Mike: Then you've got the indexed category, buffered ETFs, indexed annuities, you name it, whatever, structured notes, upside potential, no downside risk. That's the middle ground. And then you've got your variable account category. That's the stocks, ETFs. Not talking variable annuities.
• 2:43
  I haven't seen a variable annuity I really liked. They exist, whatever. Yeah. But it's it's the long term time horizon. You're hedging against inflation risk.
• 2:53
  You've got downside risk. But if you have long enough time period and the right systems, it's not that bad of a deal.
• 3:00
  David: Okay.
• 3:01
  Mike: So that's that's the problem is when you lower your risk, and the research is clear, that should be done the closer you get to retirement. And the day you retire is the day you take the least amount of risk. At that same time though, you're lowering your returns.
• 3:19
  David: Yeah.
• 3:20
  Mike: It's so hard to do that switch of get rich and then stay rich. Uh-huh. It's a it's a it's an existential crisis for some people.
• 3:31
  David: Because you're used to seeing these sort of big returns, especially over the last fifteen years as you pointed out. And so then to switch your mindset, maybe that's what you're referring to, switching the mindset to, hey, it's okay if I'm only getting, you know, three or 4% return now as... And I was used to getting 12 for all those years or ten or... Yeah. But but if you're...
• 3:52
  If the plan says that it's okay to only get five or 6% return, you can afford that.
• 3:58
  Mike: Yeah. I just... I... The... What you're saying is correct, but I just wouldn't go to that that low of a return.
• 4:04
  Oh. Because you can get fixed growth at 6% right
• 4:07
  David: Yes.
• 4:07
  Mike: Yes. I mean, the idea is is there. It's slightly less growth for more predictability to get through. The research that I've done shows that if you have less risk in the portfolio, that you still have a more predictable trajectory of success. Just by having what we call reserves, and those are the assets that can't lose money.
• 4:28
  So when the markets go down, you could tap into those assets. Mhmm. That I think is the golden secret of retirement planning. Doesn't mean it's bond funds. Hey, if you're just tuning in right now and you're going, gosh, you know, I really need to get this plan going.
• 4:40
  Hey, the markets are still up. They're making me uncertain. Maybe you're losing sleep over the volatility, the the ups and downs on a day to day basis. Look, the best day to plan is today. Let's get started.
• 4:50
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• 5:15
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• 5:34
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• 5:49
  Just go to retireontime.com/call. Find the time on our calendar. Tell us what you want your retirement to look like, and tell us what you want from an adviser so we can get started and get you closer to a retirement plan, a more comprehensive retirement plan that's designed to last longer than you. Retire ontime.com/call. Get started today.
• 6:10
  Find that time.